Cities across California were sent reeling Thursday by a state Supreme Court ruling that could spell the end for about 400 local redevelopment agencies.

The court ruled on the constitutionality of a pair of bills passed by the Legislature in June. Assembly Bill 1x 26 sought to help balance the state budget by eliminating local redevelopment agencies and seizing their money. Assembly Bill 1x 27 would have allowed redevelopment agencies to remain in operation – if they voluntarily agreed to give the state a portion of their property tax dollars every year.

The court upheld the first bill, but struck down the second, which for the moment appears to leave redevelopment agencies with no chance of survival. The ruling came in response to a lawsuit filed by the California Redevelopment Association and the League of California Cities and others.

“That is the worst news we could have had,” said Bruce Broadwater, a city councilman in Garden Grove, one of 25 cities in Orange County with a redevelopment agency.

Cities view redevelopment agencies as an important tool to revitalize run-down neighborhoods. Redevelopment agencies have the authority to seize properties and use property tax revenue to subsidize new development. The agencies have also been used to finance parks, the restoration of historic buildings and other costly local projects.

Despite the court’s ruling, redevelopment agencies won’t go away immediately – they must pay off their existing debt. The decision, however, prevents redevelopment agencies from engaging in new business.

Immediately following the court’s ruling, the California Redevelopment Association and the League of California Cities vowed to work with the Legislature to develop a bill to save redevelopment.

“Without immediate legislative action to fix this adverse decision, this ruling is a tremendous blow to local job creation and economic advancement,” association president Julio Fuentes said in a prepared statement. “The legislative record is abundantly clear that Legislators did not intend to abolish redevelopment. We hope to work with state lawmakers to come up with a way to restore redevelopment.”

Long-time redevelopment critic Chris Norby, a Republican assemblyman from Fullerton, said most legislators would like to bring back redevelopment. But Norby said redevelopment agencies are greedy. The two-package bill passed in June would have allowed for their survival, he said, but the agencies challenged it because they didn’t want to cede anything to the state.

“They wanted it all and they wound up with nothing,” he said.

In Orange County, cities officials reacted to the court’s ruling with dismay.

“I’m very disappointed,” said San Juan Capistrano City Councilwoman Laura Freese, who chairs the city’s redevelopment agency. “This is the one option we hoped we weren’t going to have to work with.”

In the past, redevelopment money has been used to renovate the Mission Capistrano Depot and entice businesses like Orange Coast Chrysler and Tuttle Click Ford to San Juan Capistrano.

The court’s decision now jeopardizes planned projects, which would have relied on redevelopment funds, including a water line to service the proposed Plaza Banderas hotel downtown and the first steps of the downtown revamp plan.

In Irvine, the ruling cast doubt on the viability of the Orange County Great Park, which is meant to be constructed with future redevelopment money.

“The voters of Irvine have approved the Great Park and the way that we planned to fund it was through our redevelopment agency,” said Councilman Jeff Lalloway. “At this point, we don’t know what the Supreme Court’s ruling means for our plans.”

Irvine’s contract with a homebuilder creates a legal obligation for the city to build the Great Park, and existing obligations are supposed to be fulfilled under the new law, Lalloway said.

“There’s going to be a lot of scrambling by state legislators,” he said. “I can tell you for a fact that these guys are going to run and scramble to fix this mess because they did not intend to eliminate redevelopment agencies.”

Santa Ana Councilwoman Michele Martinez called it “a sad day, awful….This means we have to shut down — we will no longer have a redevelopment agency.”

Santa Ana is struggling to close a projected budget gap of $30 million in the next fiscal year. The city budget impact of the court ruling weren’t immediately clear on Thursday. But the city had said in August it would have to pay $20 million to participate in the alternative redevelopment program that was struck down by Thursday’s court ruling. The city’s redevelopment agency was expected to receive $728 million in net tax increment revenues over the remaining life of existing redevelopment projects.

Planned redevelopments such as a façade renovation for the historic Spurgeon building in downtown Santa Ana won’t be able to go forward, Martinez said.

However, the Station District, a planned combination of housing, retail and park space along Santa Ana Boulevard east of downtown, will go ahead because state tax credits for affordable housing are already in place for the project, she said.

Huntington Beach Mayor Don Hansen said one of his biggest concerns is how the state is going to wind down cities’ redevelopment agencies in a way that won’t devastate already-tight budgets. A list of projects slated for the Beach Boulevard and Edinger Avenue area as part of an extensive effort to revamp two of the city’s main corridors will be heavily affected by this ruling, Hansen said.

“I’m hopeful that they’ll understand that just yanking it out from underneath us has serious consequences to local budgets,” he said.

“This will probably bring any of (those projects) to a complete stop.”

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